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HindPrakash Ind NSE SME IPO review (May apply)

Review By Dilip Davda on Jan 11, 2020

• HIL is in dyes, auxiliaries and speciality chemical business.
• It has posted a sudden boost in top line in Pre-IPO/IPO years.
• The segment is witnessing cut-throat competition.
• The issue appears fully priced with offer price at a P/E of 11.7.

ABOUT COMPANY

Hindprakash Industries Ltd. (HIL) is engaged in the manufacturing and trading of Dyes, Auxiliaries, Intermediates and Chemicals. It started manufacturing unit in the year 2008 to produce Disperse Dyes, Reactive Dyes and Textile auxiliaries for catering the needs of the domestic textile industry. The Company has achieved steady growth in productivity and has expanded its range of products from dyes to auxiliaries to speciality chemicals.

With a wide range of products, HIL caters to various industries viz. Dyestuff and Dye intermediates, Textiles, Construction Chemicals, Speciality Chemicals etc. The company markets its products under the brand name 'HINDACTIVE'.

ISSUE DETAILS/CAPITAL HISTORY

To part finance its needs for working capital (Rs 8.22 cr.) and general corpus fund (Rs 2.70 cr.) HIL is coming out with a maiden IPO of 2880000 equity shares of Rs 10 each at a fixed price of Rs 40 per share to mobilize Rs 11.52 cr. The issue opens for subscription on 15.01.20 and will close on 17.01.20. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.63% of the post issue paid-up capital of the company. HIL is spending Rs 0.60 cr. for the entire proceeds of this IPO.

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this issue. Having issued initial equity at par, HIL issued further equity at Rs 27.50 in March 2013 and March 2014. It has issued bonus shares in the ratio of 5 shares for every 2 shares held in November 2018.

The average cost of acquisition of shares by the promoters is Rs 5.05, Rs 9.49 and Rs.22 per share. Post issue, HIL's paid-up capital will stand enhanced from Rs 7.54 cr. to Rs 10.42 cr. Thus the company mulls market capitalization of Rs 41.70 cr.

FINANCIAL PERFORMANCE

For the last three fiscals, HIL has posted turnover/net profits of Rs 86.12 cr. / Rs 2.14 cr. (FY17), Rs 87.48 cr. / Rs 2.32 cr. (FY18) and Rs 97.99 cr. / Rs 2.83 cr. (FY19). For H1 of FY20, it has clocked in the net profit of Rs 1.78 cr. on a turnover of Rs 50.64 cr. HIL's top line has shown a sudden jump in a pre-IPO year. Its revenue mix for the last three fiscals consists of 80% from manufacturing activities and 20% from trading (on an average basis). For H1 of FY20, this mix is 95% and 5% respectively.

For the last three fiscals, HIL has posted an average EPS of Rs 3.38 and an average RoNW of 14.38%. The issue is priced at a P/BV of 1.42 based on its NAV of Rs 28.15 as on 30.09.19 and at a P/BV of 1.27 based on post-IPO NAV of Rs 31.42. HIL has paid 0.50% token dividends for the last three years.

If we annualize FY20 H1 earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 11.7 against the industry average of 13. Thus issue appears fully priced.

Its debtors holding days have increased to 90 days from 67 days a year ago period that raises concern.

COMPARISION WITH LISTED PEERS

As per offer documents, HIL has shown Camex Ltd., Mahickra Chemicals and Shree Pushkar Chemicals as its listed peers. They are currently trading at a P/E of 8.33, 29.72 and 11.1 (as on 10.01.20). However, they are not strictly comparable.

MERCHANT BANKER'S TRACK RECORD

On merchant banker's front, this is the 26th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings (excluding Gian Life which is yet to be listed), two issues opened at a discount, two at par and the rest with a premium ranging from 0.04% to 20% on the day of listings. Thus it has an average track record.


Conclusion / Investment Strategy

The company is in auxiliary chemical business used by Textile, Dyestuff and Dyes intermediates, Construction chemicals etc. This segment is fragmented with many organized/unorganized players raising cut-throat competition. The sudden boost in top line for pre-IPO and IPO year raises concern. As issue appears fully priced, cash surplus - risk savvy investors may consider investment at their own risk.

Review By Dilip Davda on Jan 11, 2020

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

HindPrakash IPO FAQs

  1. 1. Why HindPrakash IPO?

    The initial public offer (IPO) of HindPrakash Industries Ltd offers an early investment opportunity in HindPrakash Industries Ltd. A stock market investor can buy HindPrakash IPO shares by applying in IPO before HindPrakash Industries Ltd shares get listed at the stock exchanges. An investor could invest in HindPrakash IPO for short term listing gain or a long term.

  2. 2. How is HindPrakash IPO?

    Read the HindPrakash IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. HindPrakash IPO what should investors do?

    HindPrakash IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the HindPrakash IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is HindPrakash IPO good?

    Our recommendation for HindPrakash IPO is to subscribe for long term.

  5. 5. Is HindPrakash IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the HindPrakash IPO.

  6. 6. When will HindPrakash IPO allotment status?

    The HindPrakash IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by Jan 24, 2020. Visit HindPrakash IPO allotment status to check.

  7. 7. When will HindPrakash IPO list?

    The HindPrakash IPO will list on Monday, January 27, 2020, at NSE SME.